3520 - Accounting for merger of trusts

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CdnAmerican
Posts: 208
Joined: Tue Aug 30, 2011 12:15 am

3520 - Accounting for merger of trusts

Post by CdnAmerican » Sat Feb 16, 2019 2:45 pm

I am a USC in Canada. I had two separate RESP accounts which I have merged into a new account. I treat these as trusts, so I'm completing my 3520 and 3520-A forms.

On the 3520 for the new account, I am indicating a gratuitous transfer on the day the funds entered this account. This resulted in zeroing the old accounts. I have not called these distributions on the two old accounts, but simply said these now have value of $0.

Is this the right way to do this? I have not withdrawn any funds, so there would seem to be no distribution. I just wonder if it will look odd.

Thanks in advance!
Not a professional opinion.

DrJFM
Posts: 9
Joined: Wed Jun 05, 2013 6:53 pm
Location: PEI

Re: 3520 - Accounting for merger of trusts

Post by DrJFM » Mon Apr 01, 2019 8:58 pm

I accomplished this several years ago and can detail what I did. No issues arose, but that does not mean that what I did was the only or the best or the most compliant way to do this --- just means it worked once for me. YMMV

In general, I have always balanced the new years 3520A incoming statement with the prior years exit statement by taking the Canadian values for my account and converting to US$ using both the prior year average exchange rate and the current year average exchange rate. Any gain or loss is entered on Pert III Line 10 and labeled as Currency gain or loss. The gain or loss is added to or subtracted from the Part III line 18 Accumulated Trust Income and leaves my Corpus constant between the 2 years. You may wish to use the exchange rate on the day the accounts were closed, not the yearly average rate. To complete the discussion, I will assume that you did not make any distribution, beyond the merging of the accounts, in this year.
You have the closing statements for the two closed RESP accounts (hopefully) showing a balance going to zero after transfer. I also hope you did not change institutions since this might yield a hard closure of the two accounts and the opening of a new account. I used the same institution for the new RESP and this generated a transfer form. This was sent along with the filings as were the closing statements for the two original accounts. It is also possible that you transferred one account into a second that was already set up as a family account and not an individual.

Having prepared a balanced "year" end like final 3520A for both accounts, dealing with any gains, interest etc as in the past, I zeroed the account with the transferred amount entered as a negative entry on Part III line 19 Other for the "end of year" column yielding a zero balance for the account.

This amount shows up in the new account as an entry Part III line 10. It is combined with the same account close out treatment from the second account to yield an incoming value for the new account. I entered this in the Start of Year column. The corpus and profits (lines 17 and 18) are similarly the sums of the corresponding values for the accounts being closed. The total reflects the new account total after transfer and I entered these values in the Start of Year column even though the account may have started with zero. I did enter 0 for everything above line 10 in the start of year column. If you collapsed one into the second account, you would have the start values for the surviving account in lines 1 to 9 and would add any currency gain or loss calculated to the amount "rolled" into this account. You still use the summed Corpus numbers to balance the "start of year" column. From here, you just finish the combined account year end value as you have been doing.

I sent a detailed "statement" ie a letter fully describing the treatment of the event as an arms length "Rollover" of the two accounts into the new combined account and stating that since all gains in the account had been reported and taxes paid in prior years, there was no additional taxable event to report and no real distributions to report. Any gains shown in the accounts YTD upon closing were noted and stated that they would be reported on my 1040 along with any gains or losses from the final joint account. I mentioned the starting and ending tax year statements of the accounts were attached and attached the transfer agreement from my institution as well as trust agreements etc for the new account.

I created and used reference numbers, Part I b(2), for all the accounts involved and noted the other reference numbers that were pertinent on each 3520A and 3520. Use the reference number assigned to the combined account in future years. If you had already assigned numbers to the two accounts being combined, obviously use the same numbers this year. The letter explaining all this used these reference numbers as well.

I have always felt that too much information with each filing was better than too little. I send 3520A's as one submission and attach a copy of the 3520A to the 3520 form submitted for that account. I send a copy of any letter with everything. I include starting and ending statements for the account (for the year or, in this case, from Jan to closure or from opening date to Dec 30). If 4 pounds of paper can help convince a tax bureaucrat that all is fine, it is money well sent on mailing and copying.
I have also used this approach to change from one type of account to another. I also didn't fancy listing the close out money as any type of distribution so entered it as Other and explained fully in an attached statement. The transfer amount shows up as the only entry on the "Beginning of the Year" column of the new account and the Corpus and Profits transferred to the new account exactly as shown in the "End of Year" lines of the account being closed. I found this satisfying and easiest to maintain way to deal with these key values (important when you start distributions).

Cheers.

CdnAmerican
Posts: 208
Joined: Tue Aug 30, 2011 12:15 am

Re: 3520 - Accounting for merger of trusts

Post by CdnAmerican » Wed Apr 10, 2019 1:06 am

Thanks DrJFM - It was good to see that your arithmetic seems the same as mine. It always feels backwards to me, but it seems to have worked. I have largely taken your approach, but I didn't attach the bank statements as my theory is that more information will just confuse them. I'm not sure whose is right, but as long as they work for us then maybe we are both right! I submitted these over six weeks ago, so I am hoping they are OK. Thanks!
Not a professional opinion.

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